Neil Liversidge, managing director of West Riding Personal Finance Solutions, spent several months attempting to find out whether he was authorised to advise on certain products.
But the FCA eventually told him he should seek independent legal and compliance guidance because of the "complexity" of his query.
Mr Liversidge told FTAdviser he was "just trying to do his job" and didn’t see why he should "chuck money at lawyers only for the FCA to come back at a later date and decide retrospectively that he had interpreted the rules incorrectly".
The issue began in February, when Mr Liversidge asked the City watchdog to confirm whether he was able to recommend certain real estate investment trusts that fall under chapter six of the regulator’s own listing rules.
Reits are investment trusts that invest in real estate instead of company shares and are split into two categories — chapter six and chapter 15, depending on where they fit in the listing rules.
Trusts that fall under chapter 15 are standard investment trusts that invest in property rather than companies, but chapter six Reits are long-standing property companies — such as British Land — which have morphed into REITs over the years.
Mr Liversidge asked the FCA if his permissions to recommend and advise on standard Reits — which fall under chapter 15 — meant he could do the same for chapter six trusts.
Chapter 15 Reits fall within the scope of the Packaged Retail and Insurance-based Investment Products Regulation that came into effect in January 2018 so require a Key Information Document — which explains what the product is, the risk rating and potential returns in laypersons terms — to be given to the client.
He described the process of recommending chapter 15 REITs as "easy" but wanted clarification from the regulator as to whether he was also authorised to recommend chapter six Reits — which don’t require a Kid.
Mr Liversidge wrote to the FCA: "Can I recommend chapter 6 Reits, which don’t have a Kid, to clients? If I can, is there anything special I need to do or tell the client in the absence of a Kid?"
He went on to tell the regulator that he "just wanted to be clean from a regulatory point of view".
The FCA told him that his query had been escalated to the relevant team then, after several months, told him over the phone that they would e-mail him their response — but no e-mail arrived for around a month until he chased the regulator last week.
The City watchdog responded: "The team have reviewed your query and have come back to state that due to the complexity of the query, they would recommend the firm seeks its own independent legal and compliance advice."
Mr Liversidge told FTAdviser: "Imagine if the Department of Transport produced a Highway Code of such complexity that even it could not tell drivers what amounted or did not amount to safe and legal driving.
"There’d be carnage, the courts would be overflowing, and the lawyers as usual would be the only winners."
Mr Liversidge said he still did not know the answer to his question.
Alistair Cunningham, financial planning director at Wingate Financial Planning, said he was not surprised as the regulator tended to take the view that it was not for them to explain the rules.
He added: "The FCA creates the framework and does what it thinks is right and sometimes the rules are open to interpretation, like in the defined benefit world."
But Mr Cunningham went on to say that it was surprising the regulator had admitted it was "too complex" as "someone in the FCA surely knows" the answer.
Paul Stocks, financial services director at Dobson & Hodge, thought this demonstrated how vague and complex regulation could be.
He said: "As a smaller firm, there’s a lot of regulation that’s not black and white and, in a regulatory environment, that makes me nervous.
"There could be accidental harm to the client, firms with good intentions could make mistakes thinking they were doing a regulatory-safe move and firms with bad intentions can make the most of the grey and look to exploit consumers.
"From the FCA’s point of view, this should have been a yes or no answer. It should not be this complex."
Darren Cooke, chartered financial planner at Red Circle Financial Planning, said it was "an absolute joke" that the regulator couldn’t explain its own rules and that he was "quite disappointed but not surprised" by it.
He added: "This is a serious problem and demonstrates how ridiculous some rules can be.
"These are the rules the FCA is supposed to enforce, and they cannot explain it themselves. It’s really not good enough."
A spokesperson from adviser trade body Pimfa said: "Pimfa believes this is not a proportionate response that a small firm would need to seek legal advice. The issue raised requires a further, more considered response from FCA."
Pimfa attempted to clarify the issue but was not able to.
FTAdviser contacted several compliance consultants to establish an answer to Mr Liversidge’s question, but was not able to.
The FCA declined to comment.
imogen.tew@ft.com
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